Member Newsletter

NFA establishes Special Committees for the review of funding and governance

A reliable revenue stream and the ability to act quickly in the face of a rapidly changing business environment are essential to the success of any organization. The passage of the Commodity Futures Modernization Act of 2000 and the continued emergence of electronic exchanges could impact both of those essential elements for NFA. To address these issues, NFA's Board recently appointed a Special Committee on Funding and a Special Committee on Governance at its February meeting.

Assessment fee income currently provides for about 85 percent of NFA revenue. NFA Bylaw 1301 sets the level of the assessment fee and describes the types of trades that are exempt from the fee. A recent study of NFA's current fee structure reveals that approximately 76 percent of current trading volume is exempt from the fees and the same flat rate applies to all customers, regardless of the volume they trade.

"NFA has always been committed to setting the assessment fee at a level that allows us to operate efficiently without placing undue financial burdens on the users of the markets," says Tom Sexton, NFA associate general counsel and liaison to the Special Committee on Funding. "But with electronic exchanges promising smaller per-trade costs and the possible expansion of exchange 'members,' NFA must re-examine the assessment fee level and who is exempt from paying those fees."

"The Special Committee will examine three issues relating to the assessment fee," says Sexton. "It will analyze whether there should be a tiered-fee structure, based upon the type of customer, volume or some other factor. It will also analyze whether the current reduced assessment fee for mini-contracts is set at an appropriate level. And it will examine whether the current exemptions from the assessment fee should be further narrowed."

The Special Committee on Governance, chaired by Leo Melamed, has been charged with the task of determining whether the size and composition of NFA's Board of Directors fairly reflects NFA membership in light of recent changes in the industry.

"Although there have been profound changes in the industry since NFA began in 1982, the size and structure of NFA's Board has not changed significantly," says Chief Operating Officer Dan Roth. "We need to ensure that we have the ability to make decisions quickly to adapt to changes in the business environment."

The Committee will look at the composition of the current 45-member Board and other associated governance issues. The Chairman of the Special Committee for Governance is Leo Melamed, Melamed & Associates. Other members of the Committee are: W. Robert Felker, Banc One Brokerage International Corp.; Douglas O. Kitchen, Rosenthal Collins Group LLC; Frederick G. Uhlmann, E.D. & F. Man International, Inc.; Paul J. Georgy, Allendale, Inc.; George E. Crapple, The Millburn Corporation; Nickolas J. Neubauer, Chicago Board of Trade; Joseph J. O'Neill, New York Board of Trade; Warren W. Lebeck; and Susan Phillips, The George Washington University.

Both of the Special Committees have already begun work and NFA staff members are currently gathering historical data to assist the Committees in their research. The Committees are expected to make their recommendations to NFA's Board by November.

NFA is the premier independent provider of efficient and innovative regulatory programs that safeguard the integrity of the derivatives markets.